Rio’s Mongolian misery

Operating in emerging countries has its own unique risks

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Resources giant Rio Tinto Limited (ASX: RIO) is facing more issues at its multi-billion dollar Oyu Tolgoi copper and gold mine in Mongolia.

Oyu Tolgoi is one of the world’s largest undeveloped copper and gold assets, with a measured and indicated resource estimated at 41 billion pounds of copper and 21 million ounces of gold. Over its life, Oyu Tolgoi is expected to produce an average of 425,000 metric tons of copper and 460,000 ounces of gold a year. Upon completion, the mine will account for more than 30% of Mongolia’s gross domestic product.

Rio is managing the development of the massive mine, and owns a 51% stake in Turquoise Hill, a Canadian listed miner (formerly Ivanhoe Mines), which in turn holds a 66% stake in the project. The Mongolian government owns the remaining 34%. As an interesting aside, Oyu Tolgoi is Mongolian for “turquoise hill”.

Disputes between the partners appears to be increasing in frequency. Now it seems the Mongolian government is refusing to support Rio’s plans to raise as much as US$6 billion to fund the next phase of development, and has queried the projects rising costs.

Both parties have agreed to keep funding the project, keeping it on track to begin producing in June 2013, while they try to resolve the dispute over costs.

Earlier this week, Mongolia suspended two mining permits for Entree Gold, a Canadian gold and copper explorer, partly owned by Rio that had been prospecting on land surrounding Oyu Tolgoi.

Mongolian officials have also complained that Rio hasn’t been transparent about the Oyu Tolgoi operation, and has structured the project’s capital to suit the miner, at the expense of the government.

In October last year, Rio and Turquoise Hill were forced to publicly reject an appeal from the Mongolian government to renegotiate the investment agreement. Rio has stood its ground, suggesting any attempt to renegotiate the agreement could jeopardise the second stage of development, and seriously impact on foreign investment in Mongolia. ASX-listed Haranga Resources (ASX: HAR), Aspire Mining (ASX: AKM) and Xanadu Mines (ASX: XAM) are just three Australian companies that could pull out of the country.

Foolish takeaway

These issues show how difficult it is for miners to operate in foreign countries – especially when there are large sums of money at stake. Rio will be hoping Mongolia doesn’t go down the same track as Zimbabwe, which has repossessed claims, seized mines and forced foreign miners to hand over 51% of their mines to locals.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »